LL Flooring Reports Fourth Quarter and Full Year 2023 Financial Results

LL Flooring Holdings, Inc. (“LL Flooring” or “Company”) (NYSE: LL), a leading specialty retailer of hard and soft surface flooring in the U.S., today announced financial results for the fourth quarter and year ended December 31, 2023.

"Fourth quarter business conditions remain difficult as we continue to experience the impact of weakness in existing home sales and the corresponding softness in the home improvement industry. We reported comparable store sales down 19.6% as we saw continued declines in traffic and lower average project sizes for our consumer and pro customers. Despite external headwinds, we are focused on our ability to deliver the high-touch service of an independent flooring retailer combined with the value, assortment, and convenience of a national brand,” said President and Chief Executive Officer Charles Tyson.

Tyson continued "Leading economic indicators suggest that home improvement spending will continue to be challenged through at least the first half of 2024, however, the long-term fundamentals of our business are strong due to aging housing stock, increased household formation and rising home values. To that end, we remain focused on executing on our brand transformation and on our strategic initiatives which we believe will drive revenue growth, increase brand awareness, spur product innovation and deliver a consistent customer experience. We are also gaining traction on several of our operating strategies, focusing on the customer experience, driving and improving NPS scores, innovating products including the execution of our carpet initiatives, and maintaining a strong focus on improving operational efficiencies and working capital management. All of which, gives us confidence in achieving long-term growth.”

Fourth Quarter Financial Highlights

• Net sales decreased 19.7% to $211.8 million compared to the same period last year, driven by a decrease in transaction count and average transaction size reflecting lower spend by consumers and Pros.
• Total comparable store sales decreased 20.2% versus the same period last year.
• Gross margin increased 270 basis points to 38.6% and Adjusted gross margin¹ increased 260 basis points to 38.3% compared to the same period last year, primarily driven by vendor cost outs and lower transportation costs, partially offset by headwinds from higher vinyl sourcing costs as we increased sourcing from domestic vendors.
• SG&A as a percentage of net sales increased 430 basis points to 46.8% compared to the fourth quarter of last year and Adjusted SG&A¹ as a percentage of net sales increased 800 basis points to 46.8% compared to the fourth quarter of last year. The increases in both SG&A and Adjusted SG&A as a percentage of net sales were due primarily to expense deleverage from lower sales volumes; Adjusted SG&A spending decreased $3.1 million primarily due to restructuring activities and lower advertising spend.
• Operating margin loss increased 170 basis points to 8.3% compared to the fourth quarter of last year. Adjusted operating margin loss¹ increased 550 basis points to 8.6% compared to the fourth quarter of last year.
• Loss per Diluted Share increased $0.09 to $0.62 compared to the fourth quarter of last year. Adjusted Loss per Diluted Share¹ increased $0.35 to $0.64 compared to the fourth quarter of last year.
• We’ve continued to evaluate our store portfolio, resulting in the closure of seven stores during the fourth quarter. We also opened one new store, bringing our total store portfolio to 437 stores as of December 31, 2023.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Full Year Financial Highlights

• Net sales decreased 18.5% to $904.7 million compared to last year, driven by a decrease in transaction count and average transaction size reflecting lower spend by consumers and Pros.
• Total comparable store sales decreased 19.6% versus last year.
• Gross margin decreased 40 basis points to 35.7% compared to 2022 and Adjusted gross margin¹ increased 140 basis points to 37.5% compared to 2022. Gross margin decreased due to unfavorable antidumping duty rate changes and customs detentions on certain vinyl flooring products from Asia. The increase in adjusted gross margin¹ was primarily due to lower vendor and transportation costs.
• SG&A as a percentage of net sales increased 740 basis points to 44.6% compared to last year and adjusted SG&A¹ increased 820 basis points to 44.5% compared to last year. Both SG&A and Adjusted SG&A increased as a percentage of net sales primarily due to expense deleverage on lower net sales; Adjusted SG&A spend remained relatively flat compared to 2022, as the cost savings from our restructuring activities and lower spend on advertising were offset by higher occupancy costs associated with the addition of a third distribution center, rents of new stores and lease renewals at higher rental rates, non-recurring professional services and IT spend associated with the rollout of our CRM.
• Operating margin loss increased 780 basis points to 8.9% compared to last year. Adjusted operating margin loss¹ increased 680 basis points to 7.0% compared to last year.
• Loss per Diluted Share increased $3.17 to $3.59 compared to last year. Adjusted Loss per Diluted Share¹ increased $2.84 to $3.01 compared to last year.
• During 2023, the Company opened three new stores and closed eight, bringing total stores to 437 as of December 31, 2023.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Cash Flow & Liquidity

As of December 31, 2023, the Company had liquidity of $118.2 million, consisting of excess availability under its Credit Agreement of $109.4 million, and cash and cash equivalents of $8.8 million.

During 2023, the Company generated $21.3 million of cash flows from operating activities, primarily driven by our effective inventory management and our cost savings initiatives implemented by management.

2024 Business Outlook

The Company continues to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, a volatile interest and mortgage rate environment and continued declines in existing home sales. As a result, the Company is not providing financial guidance at this time.

The Company is, however, providing the following commentary. The Company expects:

• In terms of our sales outlook for 2024, while we strongly believe that our strategic initiatives of our CRM and Pro initiatives will improve the customer experience and help drive traffic to stores, our visibility is limited as to when the macroeconomic environment will normalize.

• Adjusted gross margins¹ are expected to maintain year-over-year, driven primarily by potential reductions in transportation costs. The Company will continue to monitor the competitive pricing environment to inform its pricing and promotion strategies.

• SG&A dollar spend and SG&A spend as a percentage of sales are expected to increase year-over-year, primarily due to lower net sales as we continue to invest in our strategic initiatives while navigating a dynamic macroeconomic environment.

• Capital expenditures of approximately $15 million in 2024, primarily related to our strategic initiatives such as the rollout of Carpet across our store portfolio, and maintenance capital investments.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Learn More about LL Flooring

• Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html
• Follow us on social media: Facebook, Instagram and Twitter.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on March 4, 2024, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (833) 470-1428 or (929) 526-1599 and entering pin number 918613. You may also use this website https://events.q4inc.com/attendee/638357847 in lieu of speaking to an operator. A replay will be available approximately two hours after the call ends through March 11, 2024 and may be accessed by dialing (929) 458-6194 and entering pin number 285260. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LLFlooring.com.

About LL Flooring

LL Flooring is one of the country’s leading specialty retailers of hard-surface flooring with more than 430 stores nationwide. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard and soft surface floors featuring a range of quality styles and on-trend designs. LL Flooring's online tools also help empower customers to find the right solution for the space they've envisioned. LL Flooring's extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. LL Flooring stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of LL Flooring's products, the majority of which is in stock and ready for delivery.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” "assumes," “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” "targets," “potential,” "will likely result," and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control.

The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2023, and the Company’s other filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com.

Non-GAAP and Other Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of net sales; (v) Adjusted Operating Income (Loss); (vi) Adjusted Operating Margin (Loss); (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a percentage of net sales; (ix) Adjusted Earnings (Loss); and (x) Adjusted Earnings (Loss) per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because we believe the non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, These measures provide an additional tool for investors to use in evaluating our ongoing operating performance, and management, in certain cases, uses them to determine incentive compensation. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include regulatory and legal settlements and associated legal and operating costs, changes in antidumping and countervailing duties, and goodwill impairment, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature. Reconciliations of these non-GAAP financial measures are provided on the pages that follow.

Reconciliations of forward-looking non-GAAP measures are not provided because the company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the timing and significance of antidumping rate changes or vinyl charges.

(Tables Follow)

Items impacting gross margin with comparisons to the prior-year periods include:

Items impacting SG&A with comparisons to the prior-year periods include:

Items impacting operating income and operating margin with comparisons to the prior-year periods include:

^1,2,3,4,5 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

Items impacting other expense (income) with comparisons to the prior year periods include:

Items impacting earnings per diluted share with comparisons to the prior-year periods include:

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